The Number One Financial Threat In America (Part: 1)
Find out how renting has become the number one threat to America, and everyone that lives here.
Close to half the country is now renting. Some feel stuck in the rental trap. Others have been seduced into renting. Being stuck as a renter isn’t good, and it doesn’t matter how fabulous that rental is. Unless our current course is diverted, the long term renter trend could negatively impact homeowners, and the wider economy.
So what’s wrong with renting? How can more people buy homes, sooner? Why do real estate investors and the wealthy need to be concerned? What should they be doing about it?
The Need to Rent
People need housing. They need to provide shelter for their families. Life and finances get a lot better when you have housing. Millions of Americans are stuck renting right now. With foreclosures spiking by over 150% in some areas in early 2015, more renters will be entering the market. Some may have no choice except to rent. At least for a short period of time. Many more have been sold on renting. They’ve been manipulated into believing that renting is better. It’s not. It is better for landlords and Wall Street in the short term. However, it is not better for individuals and their families.
Those that are renting need to map a path to homeownership. Industry professionals and lawmakers need to recognize the long term threat, and begin creating solutions now.
RENTING IS NOT SUSTAINABLE
Renting is not a sustainable housing solution. This is a fact that 99% of Americans and U.S. residents need to wake up to. Unless you are a member of the 1%,the chances of you being able to rent for a prolonged period of time are getting slimmer. Even if rents stayed affordable, you need enough income. Most will need at least a couple million dollars in the bank in order to earn enough interest to pay for rental housing in retirement. How close are you to this goal right now?
We are living longer. How will you pay your rent between retiring at 70 and your 100th birthday? That’s 30 years of rent you need stashed. That doesn’t count food and healthcare costs. Never mind gifts for the grand kids, and trying to afford rounds of golf.
The Social Security Administration is already issuing disclaimers when sending out benefits statements. They are warning that they already know they simply won’t have enough money to pay everyone’s social security benefits. It doesn’t matter if you earned them. If they don’t have the money, you may not see a penny coming in during retirement. This is about survival.
Then look at the math of how much more you’ll pay in rent over your lifetime. Someone who is 40 years old today could easily have another 60 years of housing needs. You can pay rent for 60 years, or you can buy a home and pay it off in less than half that time. With a 15 year mortgage you could slash 45 years of rental payments! At just $1,000 per month in rent, that is saving $540,000. Surely you could find something better to do with a half a million dollars than to pay for your landlord to get wealthier? That’s if you can find anything to rent for $1,000 in a few years from now. For most, this figure will easily top $1 million. So you could be a millionaire, just by switching from renting to buying a home. Zillow also says that buying a home is half as expensive as renting. If your new home payment is half as much as your rent; that’s another quarter of a million dollars saved.
Waiting Isn’t Helping
Waiting to make the leap to buying a home isn’t helping. Every day as a renter means wasting more money. It means a day making someone else richer, while you get poorer. Every day you wait to buy a home means that it is going to be more expensive to buy a home. And it means losing out on what you could be gaining in home equity. Instead of putting that $1,000 rent check in your landlord’s account, you could be putting it in yours!
Rents are going up. So you also have to factor in how much more you’ll be paying for the same place in rent in a year. And in 10 or 20 years. In some areas landlords are able to get 50% more than last year. That may be on the extreme end, but it is happening. And it is going to go higher. If you have been paying $1,000 a month, but your landlord can rent the same unit for $2,500 per month next year, what do you think they will do? If you are a great tenant they might offer you a deal somewhere in the middle. But their costs are rising, and they need to make money too.
Home prices are going up. Mortgage interest rates will go up. And as the real estate market keeps improving; competition over homes will go up too. Home price increases are the least of your worries. Just a couple point rise in interest rates can mean paying hundreds of dollars more per month for the same home. And hundreds of thousands more in interest over the life of your home loan. The sooner you can buy a home the better.